Is there a more challenging job today than managing a radiology department in a hospital? If a service line is unprofitable, discontinuing it usually is not an option. If an uninsured patient is delivered to the emergency room, imaging services cannot be denied based on the inability to pay. And if an emergent patient needs a CT, the scheduled outpatient examination gets bumped.
The stakes are high here: outpatient radiology contributes almost as much revenue to the bottom line of a hospital as outpatient surgery and an equivalent number of profit dollars, according to Future of Diagnostic Imaging, Strategic Forecast and Investment Blueprint, a new report from the Health Care Advisory Board, Washington, DC.1 Working from Medicare 2001, it noted that radiology contributed $14.8 billion in outpatient revenue compared to $19.5 billion from outpatient surgery; they both contributed $3 billion in profit. However, hospital-based outpatient radiology competes with a growing number of freestanding competitors unconstrained by hospital mission and reality. The report cites data from Verispan LLC that indicate the number of freestanding imaging centers has grown from 2,188 in 1993 to 4,773 in 2003. It also offers that the hospital share of outpatient imaging dropped from 41% in 1999 to 40% in 2001. Hospitals cannot afford to lose outpatient imaging.
Yet while imaging is one of the hospital’s leading revenue centers on the outpatient side, it is also a significant cost center on the inpatient side, where imaging is typically bundled into case rates, generating no direct revenue. Imaging capital expenditures at an aggregate cost of $7.2 billion are beginning to rival overall hospital construction costs at $19 billion.1 With inpatient examinations accounting for a substantial portion of all hospital imaging, the report authors aptly point out that “radiology departments are always serving two masters: lucrative but often elective outpatient exams, and clinically important but financially unrewarding inpatient procedures.” 1
In equipping a radiology department, radiology administrators (in conjunction with their chairmen, CFOs, and COOs) must decide the strategic moment to upgrade, balancing the need to stay competitive with the ability to maximize and occupy capacity. These decisions must be made amidst a dizzying advance in technology that is changing so rapidly as to render obsolete for some modalities the old 5-year-to-return-on-investment formula.
An effective technology management strategy will make or break the department of the future. Knowing when to upgrade to the next level of technology and how to cost justify that move will be a critical, time-sensitive activity. Having just returned from the meeting of the American Healthcare Radiology Administrators’ annual meeting in Boston, I can say with confidence that many of the radiology departments of America are in not good but very good hands. Radiology administrators delivered excellent sessions on supply chain management, building customer loyalty, and maximizing outpatient revenue. As we move into the unknown, may the road rise up to meet you all. The future solvency of our hospitals depends on you.
- Packard SD, Koppenheffer M. Future of Diagnostic Imaging: Strategic Forecast and Investment blueprint. Washington, DC: Health Care Advisory Board, The Advisory Board Co; 2004.